Crunch Bets on Private Equity, Franchising to Grow Its Brand Domestically and Internationally

As Crunch, New York, celebrates its 30th anniversary in 2019, Keith Worts and the rest of the Crunch management team are focused on growing their club numbers, focusing the next five years on the U.S. market and then turning to international growth, he shared with Club Industry in a July interview for the August Club Industry Podcast.

The growth will be made possible by investment from its new majority owner, TPG Growth, and from franchising.

Worts noted that more private equity firms are interested in the fitness industry for a variety of reasons. The industry has matured and has shown that it has grown the percentage of people joining clubs—up from 12 percent 10 years ago to around 20 percent now, according to IHRSA. Millennials have grown up watching their parents work out, and Millennials who went to college have experienced the rec centers at their universities. That generation now sees exercise as part of a healthy lifestyle, he said. Investors see that change.

And clubs are also retaining members better.

“I think the retention piece of the business people have gotten over that hurdle—and I’m going back 15-20 years in the fitness business,” Worts said. “But over the course of time, I think that was one limiting factor in why people may not have been interested [in investing in the industry] 10-15 years ago.”

In addition, in the last five years of traditional retail to invest in as big-box stores have reduced their counts or closed, has caused investors to turn elsewhere for opportunities, he said.

“That has created a surplus of opportunity for fitness to go out and grow and expand,” Worts said.

Private equity firms in a good economy are looking for a place to invest.

“There’s a lot of bright people in private equity, and I think they’ve understood all of these factors and they see that this is a really good long-term investment opportunity,” Worts said. “We saw that with our previous sponsor in Angelo Gordon, and we expect that TPG sees the same.”

Much of the growth for Crunch will come from its franchisees. The company is committed to growing the company with a smaller group of franchisees, a philosophy of “stay small to grow large” that Worts credits to Crunch Franchise CEO Ben Midgley.

“And that theory has proved well for us,” Worts said.

The brand has about 88 franchisees with the average franchisee committed to opening eight to 10 locations, which adds up to more than 1,000 locations sold so far. As of July, Crunch had 300 of those locations open with plans to double that number in the next five years, Worts said.

“With a smaller number of franchisees, it creates less challenges and issues,” he said. “If you have 500 locations and 400 franchisees, you are going to have a lot of challenges in managing the franchise group and making everybody happy.”

Hear more about Crunch’s growth plans and the challenges that Worts sees for the industry plus more by listening to this month’s podcast here. The podcast is sponsored by Core Health & Fitness, and the podcast includes an interview with Tim Hawkins, global vice president of sales and marketing with Core.